Do-it-yourself safeguards are just as effective as paid services
Consumer Reports magazine: January 2013
About 50 million U.S. consumers spent $3.5 billion in 2010 to buy products that are claimed to protect their identity. But do-it-yourself safeguards are just as effective as paid services, according to Javelin Strategy & Research, a California consulting firm. And self-help costs little to nothing; the paid services cost $120 to $300 annually. Here’s why you don’t need to buy ID-theft protection:
Marketing can be deceptive. Regulators have slapped the ID-protection industry several times for deceptive marketing practices. Last summer, after actions by federal regulators, Capital One and Discover Financial Services agreed to pay a combined $410 million in refunds and penalties related to deceptive marketing of identity protection, credit monitoring, and other services. Prior to that, Affinion, Experian Consumer Direct, and LifeLock had been caught and punished for alleged deceptive marketing practices, such as not adequately disclosing automatic sign-up after “free” trials and promising to prevent ID theft, even though the services don’t actually do that.
The threat is exaggerated. Two-thirds of cases of ID theft reported to the annual National Crime Victimization Survey involve stolen credit cards, not stolen identities. Federal regulations limit your liability, usually to $50 per account, and even that is often waived by card issuers. Add stolen debit cards and check forgery, and existing-account fraud makes up 80 percent of so-called ID theft.
Do it yourself for less. Sign up for free online banking and mobile apps to monitor your checking and credit accounts daily.
New-account fraud is uncommon. The most destructive type of ID theft is having your name, birth date, and Social Security number used to open credit accounts, tap your health insurance, or file a tax return in your name to steal your refund, among other crimes. But less than 1 percent of households experienced that form of ID theft in 2010, according to the Department of Justice.
Credit monitoring is flawed. The core of many ID-protection products is credit monitoring, which looks for fraudulent new accounts on your credit reports. But most e-mail and mobile alerts from those services raise false alarms about routine changes in your file. And if fraud is detected, you might not be “warned” until days, weeks, or months after the fact.
Do it yourself for less. Get free annual credit reports from each of the three major credit-reporting bureaus—Equifax, Experian, and TransUnion—by going to annualcreditreport.com. Stagger your requests every four months from one bureau to the next. You’re also entitled to a free credit report from each bureau after you place a 90-day fraud alert on your credit file—which you should do every 90 days if you’ve been notified of a security breach, your wallet has been stolen, or you detect other red flags of ID theft. The alerts prompt lenders to more carefully verify applicants using your ID.
Web scans offer false security. Some services scan online black-market chat rooms for your stolen Social Security number or credit-card numbers. But if crooks are found to have your ID data, you can’t get it back from them.
Do it yourself for less. If your data turn up on a scan, protection companies advise you to place a security freeze on your credit reports. That prevents new creditors from getting access to your file when someone tries to open an account, so they’re more likely to deny a crook’s credit application. But you can freeze your files without paying a service to scan the Web. There’s a small fee for each freeze in most states, unless you’re already a victim of ID theft.
$1 million insurance is overkill. Most services offer up to $1 million in ID-theft insurance. But they don’t pay if your loss is covered by federal consumer protections, your homeowners or renters insurance, or a merchant, which is the norm. The majority of ID-theft victims had zero out-of-pocket loss in 2011, according to Javelin. A minority did lose money—the average was $309 for existing-account fraud and $1,205 for new-account fraud.
Alerts are overpriced. Six of the eight biggest ID-protection services offer e-mail or text alerts when they detect that your identity might be fraudulently used in credit, cellular, and utility-service applications. You can stop the crime by responding “That’s not me.”
That simple service might be worth paying for, but it comes rolled up with other unnecessary services. One expert says corporations already use the underlying ID-scoring technology to stop most fraudulent applications without alerts.
Do it yourself for less. If you think the service is worthwhile, buy stand-alone alerts for $5 a month and get a free ID-theft protection risk assessment at myidalerts.com.
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